Dispute Resolution in FIDIC Contracts A few traps… & tips · FIDIC contract Dispute Resolution The 1999 Suite New Red Book Engineer Claim to be determined by the Engineer and then

Dispute Resolution in FIDIC Contracts

A few traps… & tips

Jean-François Le Gal

Partner at Brown Rudnick LLP (London/Paris)

Kuwait, 26 January 2016

I. OVERVIEW A short introduction on FIDIC dispute resolution mechanisms

II. A MULTI-TIER DISPUTE RESOLUTION PROCESS Traps and tips…

III. CASE STUDY Where theory meets practice

FIDIC OR FIDICS? DIFFERENT BOOKS, DIFFERENT WAYS?

I – Overview

FIDIC or FIDICS? – Different books, different ways? (1)

• Red - Yellow - Orange…

Original Forms [1957-1995]

• Red - Yellow - Silver…

The 1999 Suite [1999]

• Gold - Blue…

Subsequent Forms [2005-2013]


FIDIC contract Work Characteristics

Original Forms (superseded)

Old Red Book

(still in use)

Civil Engineering Construction

Disputes referred to the Engineer before arbitration

Engineer deemed to act impartially Still widely used in the Middle East


The participants in the 1999 Suite

• The Employer

• The Engineer

• The Contractor

• The Dispute Adjudication Board (“DAB”)


FIDIC contract Dispute Resolution

The 1999 Suite

New Red Book

Engineer Claim to be determined by the Engineer and then a Dispute

Adjudication Board (DAB), before a party may refer it to arbitration Engineer deemed to act for the Employer

DAB Standing DAB

New Yellow Book

DAB Ad hoc DAB

Gold Book 2008 Employer’s Representative Makes clear that DAB’s decision must be complied with even if a

party issues a Notice of Dissatisfaction

FIDIC or FIDICS? – Different books, different ways? Concluding remarks

• All three of the 1999 FIDIC books contain similar, although not identical, clauses for dealing with claims of the Contractor or the Employer and for dispute resolution.

• DABs have become the preferred method for resolving international construction disputes under FIDIC contracts.

MULTIPLE TIERS, MULTIPLE TRAPS… … AND A FEW TIPS

II – A MULTI-TIER DISPUTE RESOLUTION PROCESS

• Disruption

• Changes in the project Contractor’s

claims

• Poor workmanship

• Delay

Employer’s claims

What is the dispute likely to be about?

A multi-tier dispute resolution process – 4 phases…

…or just a maze?

Phase I: Preventing the dispute – Overview

Phase I: Preventing the dispute – Traps & Tips

• Be prepared – know the process, know what your rights and duties will be, before entering into the contract

• Be proactive – engage into the process, be the one taking the initiative: in the setting up of the dispute resolution bodies, etc.; don’t play games/delaying tactics

• Anticipate – identify the issues immediately when they arise – and/or even before they arise

• Consult – don’t be too confrontational and consult/speak with the other party

Phase I: Preventing the dispute – Anticipate and consult/speak with the other party

Anticipate the issues and speak to your co-contracting party:

• “Advance warnings”?

“Each Party shall endeavour to advise the other Party in advance of any known or probable future events or circumstances which may adversely affect the work, increase the Contract Price or delay the execution of the Works or the Operation Service. The Employer’s Representative may require the Contractor to submit an estimate of the anticipated effect of the future events or circumstances, and/or proposal under Sub-Clause 13.3” [Variation Procedure] (Sub-Clause 8.4 of the Gold Book).

This provision cannot be found in the Red Book, but the parties could be encouraged to follow this approach/insert a similar clause in their contract, which makes things less confrontational and is likely to help solve issues quickly – and limit the costs incurred.

• Jointly requesting a third party non-binding opinion?

“If at any time the Parties so agree, they may jointly refer a matter to the DAB for it to give its opinion” (Sub-Clause 20.2 of the Red Book).

comp. with Sub-Clause 20.5 of the Gold Book entitled “Avoidance of disputes” which seems to go a bit further:

– “If at anytime the Parties so agree, they may jointly refer a matter to the DAB with a request to provide assistance and/or informally discuss and attempt to resolve any disagreement […] The Parties are not bound to act upon any advice given such informal meetings, and the DAB shall not be bound in any future Dispute resolution process and decision by any views given during such informal meetings” (emphasis added).

Phase I: Preventing the dispute – Be proactive

Do not play obstructive games to try and make the process fail: one example – constitution of the DAB

• A DAB must be constituted within a certain time limit:

Red Book – 28 days from the Commencement Date.

Silver/Yellow Book – 28 days from when a party gives notice of its intention to refer the dispute to a DAB.

• However, even if not done in time, the constitution may still be valid:

ICC Case No. 15956 (Red Book) – DAB constituted after the contractual limit, on the sole initiative of the Contractor, and whilst the Employer had refused to sign the DAA – valid.

ICC Case No. 16570 (Yellow Book) – similar circumstances, similar conclusion – valid.

• Therefore, there is no point in playing obstructive tactics – they may have a boomerang effect later on.

Phase II: Making or facing a Claim – Overview

Phase II: Making or facing a Claim – Traps & Tips

• Mind the clock – do not miss the deadline to make your claim

• Mind the (so-called) shortcuts – think twice before trying to skip the Engineer: what looks like a shortcut may prove a dead-end

• Mind the law… and yes, call your lawyer! – avoid the headache and let him/her double check what the applicable law is

Phase II: Making or facing a Claim – Mind the clock! (1)


Be quick –

If you are the Employer, check Sub-Clause 2.5 –

• The Employer or the Engineer is required to give notice to the Contractor “as soon as practicable” after it became aware of the event or circumstances giving rise to the claim.

• Example: Privy Council, NH International (Caribbean) Ltd v National Insurance Property Development Company Ltd (Trinidad and Tobago) [2015] UKPC 37:

any claim that the Employer wishes to raise must comply strictly with the requirements of Sub-Clause 2.5

• Thereafter –

The Engineer (Red Book/Yellow Book) or the Employer (Silver Book) must make a fair determination.


Be quick –

If you are the Contractor, check the timelines set in Sub-Clause 20.1, and stick to them –

• 28 days – the Contractor must give notice as soon as practicable and no later than within 28 days after it became aware, or should have become aware, of the event or circumstance giving rise to the claim.

• 42 days – the Contractor must send to the Engineer a fully detailed claim with full supporting particulars within 42 days after it became aware, or should have become aware, of the event or circumstance giving rise to the claim.

• Thereafter –

Red Book/Yellow Book – Sub-Clause 3.5 - the Engineer must make a fair determination of any extension of time and/or any additional payment to which the Contractor is entitled under the contract.

Silver Book – Sub-Clause 3.5 – the Employer must make a fair determination.


Contractor’s claim under 1999 FIDIC Contracts


Be conservative when dealing with the timelines –

Because the interpretation of the relevant provisions has given rise to some debate.

• First example: ICC Case No. 16765 (Red Book) –

The DAB had retained a “subjective” interpretation of Sub-Clause 20.1 – basically, the DAB had interpreted Sub-Clause 20.1 as meaning the Contractor “must have reached the view that it is entitled to time and payment before notice need be served”.

The Arbitral Tribunal disagreed: the time limit does not run from when the Contractor considers itself entitled to an extension of time/additional payment but rather from when the Contractor became aware of the event or circumstance giving rise to the claim.

Further, the Arbitral Tribunal ruled that compliance with Sub-Clause 20.1 is not limited to the timing of the notice but extends to the content of the notice: however, in this case, the Tribunal found that the letter sent by the Contractor was too vague to qualify as a proper notice.



Because the interpretation of the relevant provisions has given rise to some debate (continued).

• Second example: Obrascon v AG for Gibraltar [2014] EWHC 1028 (TCC) (Yellow Book)

Sub-Clause 8.4 of the Yellow Book: the Contractor is entitled to extension “if and to the extent that completion […] is or will be delayed”.

The English High Court ruled that the notice must be given 28 days after the alleged delay occurred.

Onus on Employer to establish that a notice is not given on time.

The appeal against this decision has been dismissed in [2015] EWCA Civ 712.



Because sanctions are harsh:

• Red Book: you miss, you lose

If notice is not given in time by the Contractor, “the Employer shall be discharged from all liability” (Sub-Clause 20.1)!

• Gold Book: you miss, you may lose

The DAB has discretion to overrule the 28-day time limit at the Contractor’s request if circumstances justify the delay (Sub-Clause 20.1).

However, the implementation of this criteria may give rise to a fierce debate.

Phase II : Making or facing a Claim – Mind the so-called shortcuts (1)

Be careful if you consider referring directly to DAB/arbitration a Claim which has not been referred to the Engineer first –

Because your claim will probably fail:

ICC Case No. 16765 of 2013 (Yellow Book)

– The Employer had brought a counterclaim for delay damages before the Arbitral Tribunal.

– The Tribunal found that, to be entitled to bring a claim to arbitration, the Employer had to first comply with Sub-Clauses 2.5, 3.5, and 20.4.

– As the Employer had not in this case, its counterclaim was held inadmissible.

Phase II : Making or facing a Claim – Mind the so-called shortcuts (2)

Be careful if you consider referring directly to DAB/arbitration a Claim which has not been referred to the Engineer first –

Some exceptions:

First example: ICC Case No. 16155 of 2010 (Red Book)

– The Contractor had given notice but had then failed to substantiate its claim.

– The Contractor was authorised to proceed to the next step.

Second example: ICC Case No. 19581 of 2014 (Red Book)

– The Contractor was seeking the release of a retention money guarantee.

– The Tribunal ruled it was entitled to proceed because Sub-Clause 20.1 applies only when the Contractor is seeking an extension of time and/or additional payment.

Phase II: Making or facing a Claim – Mind the law… and yes, call your lawyer!

Do check what law governs the dispute resolution clause (Clause 20) –

Because this can be of great practical importance when interpreting the relevant dispute resolution provisions and, for instance, when determining whether these provisions are a precondition to arbitration.

• Prevailing view: the pre-arbitral procedures in a dispute resolution clause are to be considered part of the arbitration clause and therefore governed by the same law:

Swiss Federal Court, 7 July 2014, ASA Bull (Red Book) – the pre-arbitral procedures should be interpreted under the same law (Swiss law) as the arbitration agreement, although this law is different from the law governing the rest of the contract.

Phase III: Dealing with the dispute/the DAB – Overview (1)


Sub-Clause 20.2 –

• Disputes (not mere claims) must be referred to the DAB, to be appointed jointly by the parties.

• Steps are as follows:

(1) The Contractor or the Employer refers the dispute to the DAB; then

(2) Within 84 days - the DAB must give notice of its decision to the parties; then

(3) Within 28 days - if either party is dissatisfied with the DAB’s decision, or the DAB has failed to give its decision, either party may notify the other of its dissatisfaction (if not, the party is time-barred); then

(4) Within 56 days - where a party has given a notice of dissatisfaction, both parties attempt to amicably solve the dispute; then

(5) Any dispute which has neither become final and binding nor been amicably settled is to be settled under international arbitration/litigation.

• These 5 steps are the same in all of the 1999 FIDIC Contracts.


• If the steps are the same in all FIDIC Contracts, the DAB is not:

Red Book – permanent DAB, constituted at the beginning of the project (within 28 days from the Commencement Date).

Yellow/Silver Book – ad hoc DAB.

• Because:

in contracts based on the Red Book, all or practically all of the work would be done on the job site, making a permanent DAB useful.

in contracts based on the Yellow or Silver Book, the majority of the work would be done off-site (e.g. in a plant or a factory).

Phase III: Dealing with the dispute/the DAB – Traps & Tips

• Before the ‘DAB phase’: mind (again) the so-called shortcuts – think twice before skipping the DAB and going directly to arbitration

• During the ‘DAB phase’: play by the rules – engage in the process and avoid counter-productive tactics

• After the ‘DAB phase’: comply – protect your rights by acting quickly but comply with the DAB decision in any case

Phase III: Dealing with the dispute/the DAB – Mind (again) the shortcuts (1)

If you are considering skipping the DAB: think twice because –

The general position is: it is mandatory to refer the dispute to a DAB prior to arbitration:

ICC Case No. 14431

ICC Case No. 16155

ICC Case No. 16262

ICC Case No. 16765

English High Court: Peterborough City Council v. Enterprise Managed Services Ltd [2014] EWHC 3193 (TCC)

Swiss Federal Court, ASA Bull, 7 July 2014



Exceptions exist, but they are limited:

• Main exception: where there is no DAB in place (Sub-Clause 20.8):

• Where there is no DAB in place, whether by reason of the expiry of the DAB’s appointment or otherwise, the requirement to refer a dispute to the DAB under Sub-Clause 20.4 or to amicable settlement under Sub-Clause 20.5 shall not apply and the dispute may be referred directly to arbitration (Sub-Clause 20.6).

• However, what does it mean? The scope of this exception is not clear:

Some authors and tribunals - whenever a DAB is not ‘in place’, for whatever reason, a party is entitled to bypass the DAB and proceed directly to arbitration.

Others (such as Christopher Seppälä) - Sub-Clause 20.8 only applies where the contract provides for a standing DAB; not where the contract provides for an ad hoc DAB.

Useful decisions have been issued in that regard recently:

– English High Court: Peterborough City Council v. Enterprise Managed Services Ltd [2014] EWHC 3193 (TCC): Sub-Clause 20.8 probably applies only in cases where the contract provides for a standing DAB.



Exceptions exist, but they are limited (continued):

• Where a party has been intransigent or uncooperative in constituting a DAB (as per the FIDIC Contracts Guide):

ICC Case No. 16155 (Red Book) – the Employer had foregone its right to insist on the appointment of the DAB because it had ignored the Contractor’s attempt to appoint a DAB during the performance of the contract.

ICC Case No. 18505 (Yellow Book) – the Contractor had repeatedly invited the Employer to sign the DAA but the Employer had repeatedly declined to do so.

Swiss Federal Court, ASA Bull, 7 July 2014 – a DAB was not operational after 15 months and the Employer had dragged its feet in constituting it and the parties had never signed a DAA. According to the Court, the DAB was “not in place”.

• Where a DAB member is found not to be impartial:

ICC Case No. 19581 – a DAB member was found not to be impartial and independent. He had failed to disclose t the fact that his wife (or ex-wife, recently divorced) was a decision-maker and head of the claims and disputes unit in the Employer’s organisation.

• Where the other party has waived its right to request the DAB stage:

ICC Case No. 16083 (Sliver Book) – waiver – the Employer was held to have waived the right to require the Contractor to submit its claims to a DAB as the Employer had itself submitted its counterclaims directly to arbitration without submitting them to the DAB.



Sanctions are harsh:

• The Arbitral Tribunal may decline jurisdiction:

ICC Case No. 6535 and ICC Case No. 16262 – in a case where the claimant had failed to refer its claims as disputes to the DAB before commencing arbitration, the Tribunal issued an award declining jurisdiction entirely.

• The Arbitral Tribunal may decide a stay of proceedings:

ICC Case No. 14431 (Red Book) – in a case where a Contractor had not referred its dispute to the DAB before beginning the arbitration, the Tribunal decided to stay the proceedings.

Phase III: Dealing with the dispute/the DAB – Play by the rules (1)

Do cooperate and engage in the process because –

Failing to cooperate in constituting the DAB may prove counter-productive – it will probably not enable you to challenge the validity of the DAB’s decision at a later stage:

• ICC Case No. 16570 (Yellow Book) – the Tribunal seemed to accept that a DAB could be constituted by the Contractor alone in a case where the Employer had not cooperated.

• Same idea/reasoning in ICC Case No. 15956 (Red Book) – DAB constituted after the contractual limit, on the sole initiative of the Contractor, and whilst the Employer had refused to sign the DAA – valid.

Phase III: Dealing with the dispute/the DAB – Play by the rules (2)

Do cooperate and engage in the process because –

Challenging the decision of the appointment authority may prove useless: it will probably not enable you to challenge the validity of the DAB’s decision:

• Sub-Clause 20.3 – if a party fails to nominate a DAB member or the parties fail to agree on a DAB appointment, the DAB will be appointed by an appointing entity, upon the request of either or both of the parties and “after due consultation with both Parties”.

• ICC Case No. 16262 (Yellow Book) – a party had alleged that the appointment was void notably because the appointing authority had not informed the parties of the person it was considering appointing or invited comments before making its decision. This argument was rejected.

Phase III: Dealing with the dispute/DAB – Deal cautiously with the DAB’s decision (1)

If you are not happy, say it quickly –

Because if you don’t, the decision becomes final and binding and the other party may bring you to arbitration directly.

• Sub-Clause 20.4 – if the DAB has given its decision and no notice of dissatisfaction has been given by either party within 28 days, the decision becomes final and binding upon both parties.

• Sub-Clause 20.7 - where neither party has given a notice of dissatisfaction within 28 days and the DAB’s related decision has become final and binding and a party fails to comply with the decision, then the other party, without prejudice to its other rights, may refer the failure itself to arbitration directly.


If you are not happy, say it clearly –

Be adequate in your notice of dissatisfaction. But no need to be too specific.

• ICC Case No. 18320 –

The Contractor had contended that the Employer’s notice of dissatisfaction was invalid as it listed only the matters in dispute and did not set out the reasons for dissatisfaction as required by Sub-Clause 20.4.

The Tribunal held that the notice was valid.


If you are not happy and have said it – still, do comply

• Tribunals do seem to recognise that DAB’s decisions are binding when made (and remain so unless revised by an amicable settlement or an award) and can be enforced by an interim or partial award.

ICC Case No. 16119 – recognition of the possibility to issue an interim award.

ICC Case No. 18320 – recognition that the decision can be enforced on a provisional basis by way of an interim award or interim measure.

III – CASE STUDY

WHERE THEORY MEETS PRACTICE

Case study (i)

• The project as designed by the Employer turns out to be flawed, and changes must be made to the work (Red Book contract).

Delays are inevitable

The Contractor is therefore entitled to an “extension of time for completion claim”

• What must the Contractor do?

The Contractor must give notice of its claim to the Engineer within 28 days of the moment when he became or should have become aware of the event (Sub-Clause 20.1)

• What happens if the Contractor does not give such a notice?

The Contractor will lose its right to claim an Extension of Time.

The Employer will not have any liability over the Extension of Time for Completion.

Case study (ii)

• When does the 28 day period start running?

• ICC Case No. 16765 of 2013

Reference must be made to the delay

Notice is a matter of time but also content

Case study (iii)

• An Employer’s lawyer must draft a contract based on the FIDIC’s Red Book

• What could he/she do about the Dispute Resolution procedure?

• Rather than stick to the Red Book, the Employer’s lawyer may be well inspired to draw inspiration from more recent dispute resolution procedures, such as that of the Gold Book.

Thank you

Jean-François Le Gal

Brown Rudnick LLP

Kuwait, 26 January 2016

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Dispute Resolution in FIDIC Contracts A few traps… & tips · FIDIC contract Dispute Resolution The 1999 Suite New Red Book Engineer Claim to be determined by the Engineer and then